The Zacks Analyst Blog Highlights: MEMC Electronic Materials, Flextronics International, Suntech Power Holding, Duke Energy and American Electric Power

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Aug 03, 2011, 09:30 ET

CHICAGO, Aug. 3, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: MEMC Electronic Materials Inc. (NYSE: WFR), Flextronics International Ltd. (Nasdaq: FLEX), Suntech Power Holding Co. Ltd. (NYSE: STP) Duke Energy Corporation (NYSE: DUK) and American Electric Power Co. (NYSE: AEP).

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Here are highlights from Tuesday's Analyst Blog:

Earnings Preview: MEMC Electronic

MEMC Electronic Materials Inc. (NYSE: WFR) is scheduled to announce its second quarter fiscal 2011 results on August 3, 2011, and we notice some downward movements in analyst estimates.

First Quarter Overview

MEMC delivered decent first quarter results, beating the Zacks Consensus Estimate on the top line, but missing on the bottom line. The quarter's adjusted earnings came in at 9 cents per share, which fell 3 cents short of our expectations. The quarter's miss could be attributed to the temporary shutdown of the Utsunomiya facility following the earthquake in Japan.

MEMC reported non-GAAP revenue of $832.6 million, which shot up 84.7% from the year-ago quarter, aided by the outperformance in Solar Materials and Solar Energy segments.

Margins were supported by production efficiencies and a favorable pricing environment. But manufacturing disruptions due to the earthquake in Japan put some pressure on margins.

Full Year Guidance

For fiscal 2011, MEMC continues to expect revenue in the range of $3.4–$3.7 billion on a non-GAAP basis and $2.8–$3.1 billion on a GAAP basis. The projected non-GAAP and GAAP earnings are in the bands of $1.00 to $1.30 and 25 cents to 55 cents, respectively.

Management further commented that despite unfavorable events such as legal verdicts and the Japan earthquake, it will remain focused on strategic business objectives, invest in growth and drive productivity in the core businesses.

Agreement of Analysts

Out of the 18 analysts providing estimates for the second quarter, 5 revised theirs downward in the last 7 days. Out of the 17 analysts providing estimates for fiscal 2011, 3 made downward revisions in the last 7 days. Also, a similar movement was noticed for fiscal 2012. No positive revision was witnessed, indicating problems in the quarter ahead.

The analysts are concerned about declining solar wafer pricing due to an oversupply across the supply chain. The analysts believe that it will not be possible for MEMC to offset the price declines with the ongoing cost reduction program.

Magnitude of Estimate Revisions

The movement of the Zacks Consensus Estimates for the second quarter and fiscal 2011 point toward the negative sentiments of the analysts. For the past ninety days, Zacks Consensus Estimates for the quarter and full year decreased 9 cents and 6 cents, respectively, to 7 cents and 99 cents. The Zacks Consensus Estimate for fiscal 2012 also dropped 4 cents in the past ninety days.

Recommendation

We believe that MEMC's second quarter results would face pressure from solar price declines. However, stable pricing in the semiconductor vertical could provide some support. A continuous cost reduction measure is also encouraging.

We see MEMC's solar initiatives as a key driver in the long term. The company recently tied up with key players such as Flextronics International Ltd. (Nasdaq: FLEX) and Jusung Engineering Co. Ltd. to make its solar ventures more cost efficient and profitable.

But the recent cessation of a solar wafer supply agreement with Suntech Power Holding Co. Ltd. (NYSE: STP) is alarming. The deal came to an end only because of a persistent fall in polysilicon prices. The deal price was much higher. Though we are unaware of any exact financial impact, we believe that MEMC's revenues and margins will get affected.

Moreover, there are risks of cuts in feed-in tariffs, which could affect solar deployments.

Currently, MEMC has a Zacks #5 Rank, implying a short-term Strong Sell recommendation.

Duke Energy Beats, Affirms

Duke Energy Corporation (NYSE: DUK) announced its second-quarter 2011 operating earnings of 33 cents per share, beating the Zacks Consensus Estimate by 3 cents. However, the results were marginally lower than the year-ago earnings of 34 cents per share. GAAP and adjusted EPS were the same for the quarter compared with a GAAP loss per share of 17 cents in the prior-year period.

The year-over-year growth in earnings was driven by the strong performance at all the three segments of the company partially offset by less favorable weather and higher operations and maintenance costs primarily related to storm restorations compared with the prior-year period.

Guidance

Duke Energy reiterated its adjusted earnings per share guidance for 2011 in the range of $1.35 to $1.40.

At the Peer

A Duke Energy competitor, American Electric Power Co. (NYSE: AEP) reported second quarter 2011 adjusted EPS of 73 cents, down from the year-ago figure of 74 cents and the Zacks Consensus Estimate of 76 cents.

Our Take

Duke Energy Corporation's U.S. electricity and gas operations generate a relatively stable and growing earnings stream. Looking ahead, the company's outlook is supported by its ongoing merger proceedings with Progress Energy. Moreover, the company will continue to work on the pending rate cases in the Carolinas, ongoing fleet modernization, and in pursuing a new Electric Security Plan for Duke Energy Ohio customers for the rest of 2011.

However, the valuation continues to be restrained by an unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, and foreign currency exchange volatility. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

In January this year, Duke Energy decided to buy Progress Energy Inc. for $13.7 billion in stock. The transaction once it gets through would create the largest U.S. utility and increase its ability to build new power plants to meet future greenhouse-gas emissions limits. On August 4, 2011, Progress Energy is expected to release its second quarter results. The Zacks Consensus Estimates for second quarter 2011 and fiscal year 2011 are currently at 63 cents per share and $3.12 per share, respectively.

Charlotte, North Carolina-based Duke Energy is a diversified energy company with a portfolio of domestic and international, natural gas and electric, regulated and unregulated businesses which supply, deliver, and process energy for customers in North America and selected international markets.

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